In this blog post, we’ll cover the SAP S/4HANA Cloud deployment options available as your next-generation ERP software. We’ll describe the main characteristics of each option and discuss how you can decide which option to take.
ERP systems have come a long way in the past 30 years, but until about 5 to 7 years ago, the main way to run a solution was to purchase a software license and implement the solution in your own data center or at a hosting provider. This scenario has changed dramatically with the rise of cloud computing. The flexible consumption of SaaS can be applied to the most complex software products, starting with more lightweight, consumer-oriented business software.
SAP S/4HANA has been natively built to address these new requirements for enterprise software. SAP has established one foundation to serve as a next-generation business suite: SAP S/4HANA. This one foundation carries all the functional elements, the data semantics, UX concepts, and the common data model. SAP S/4HANA consists of, not only software components natively built for the cloud, but also elements from the classic SAP ERP application that have been innovated but are retained in an on-premise development model. The figure below shows this one foundation, consisting of a unified data model, unified semantics, and a unified UX.
Based on this foundation, SAP has extracted all elements into new natively rebuilt cloud elements, thus creating the SAP S/4HANA Cloud product stack. This stack fulfills the goals of a public cloud solution, such as a multitenant architecture, workload isolation, and the segregation of duties, all delivered by SAP as an SaaS provider. SAP S/4HANA Cloud currently follows a quarterly innovation cycle but will move to monthly innovation cycles in the future, thus allowing an organization to consume new business capabilities and run new business models at an incredible pace.
SAP S/4HANA Cloud moves away from the monolithic ERP architecture common with classic ERP systems, towards a more modular approach. This development allows you to move into a public cloud at your own pace, step by step, and replace your current central ERP software with modern, flexible enterprise applications. Of course, the concept of one ERP core is retained even in this flexible architecture because of the common core that SAP is building on, which includes the common data model and semantics that all these applications are using. Applications “live” on their own but act as one ecosystem. The next figure shows the evolution of ERP software over the years with a look at the planned ERP cloud architecture of the future.
The second stack that SAP extracts out of the single foundation that is SAP S/4HANA is the on-premise SAP S/4HANA stack. This stack in fact is a hybrid stack since SAP is combining elements built for the cloud with parts of the software intended for on-premise use to deliver a superset of capabilities. This superset goes far beyond what SAP had been delivering with its earlier SAP ERP solution. Both stacks can run in SAP data centers, in a data center your organization owns, or on a hyperscaler infrastructure.
The cloud is the default consumption model for both variants of SAP S/4HANA. In line with the most common definitions in the market, SAP differentiates between public cloud, private cloud, and hybrid consumption. Which model you prefer depends mainly on the point of departure from which you’re starting your ERP journey—perhaps you’ll choose a standardized approach reducing custom-built applications or pursue a completely tailored ERP system enhanced and modified to fit your needs.
A public cloud, which is completely managed by the software provider, is the most cost-effective option for consuming software and can deliver the fastest path to innovation for your organization. Therefore, this option is the only option SAP provides for its native cloud solution, SAP S/4HANA Cloud. This solution is based on a completely preconfigured solution delivery and market best practices and next practices. By using SAP S/4HANA Cloud, you’ll experience a new way of consuming enterprise software. Lengthy implementation projects are replaced by outcome-oriented, fit-to-standard workshops in which the standard delivered processes are configured according to your requirements.
Moving to a public cloud may require your organization adopt a transformational approach since established processes might need to be changed. On the other hand, your end users will enjoy a new experience of agile and responsive software, which will allow them to handle standard day-to-day operations with a new degree of efficiency and automation, while being open and flexible to adjust to new market requirements and being extended as needed.
This approach is largely seen in small and medium-sized enterprises, who are driven by a desire for standardization and cost reduction. It is also seen in larger companies for selected business areas, divisions, and geographic locations where speed and agility are needed.
SAP also recognizes that specific industry sectors, such as the service industry, are moving heavily into the public cloud. Looking ahead, most of the new deals SAP will close in these industries will be in the public cloud, for both smaller and larger organizations. In addition, SAP realizes that finance-led ERP scenarios with limited complexity in the logistical processes will move to the public cloud as well.
In a private cloud, you can consume cloud services that are not shared with other organizations but are instead dedicated solely to your company. This arrangement allows more flexibility and requires less standardization than moving to a public cloud SaaS solution. A private cloud is SAP’s default offering for the on-premise SAP S/4HANA product stack. In this private cloud offering, SAP will deliver the software in an SaaS-like arrangement, running on a public cloud infrastructure technically operated by SAP. Unlike a traditional hosting scenario, where product support, product operations, and infrastructure might be distributed to different parties, with SAP S/4HANA Cloud, private edition, all these elements are delivered by SAP. This approach delivers a cloud-like experience for your company, while retaining the flexibility to adjust the solution as needed or to run a vast variety of partner add-ons on top of the solution.
Additionally, a private cloud allows your organization to convert its current SAP ERP system into the SAP S/4HANA Cloud, private edition, which can serve as a transitional step for moving fully to SAP S/4HANA in the cloud. This approach contrasts with the transformational approach that moving to a public cloud would require. SAP sees huge opportunity in this offering, which allows organizations to benefit from monetary advantages and speed of innovation in the cloud, while limiting the need for large internal change.
SAP is convinced that private clouds will be the mid- or even long-term destination for many organizational ERP systems. Organizations can simplify and standardize where appropriate, while retaining flexibility and differentiation where needed. Once transitioned to a private cloud, organizations may decide to move specific elements selectively to a public cloud over time, which is supported by the modular structure of SAP’s public cloud offering. All these steps can be driven by your organization’s direct demands.
Looking at the ERP landscapes of SAP’s existing, large-scale customer organizations, SAP recognizes that they will run in hybrid environments for the foreseeable future, where SAP S/4HANA Cloud will be combined with SAP S/4HANA Cloud, private edition or on-premise SAP S/4HANA implementations. Specific areas you want to move to a public or private cloud, and how fast, will be driven by your organization’s digital transformation agenda and by the requirements of your business.
With SAP S/4HANA, SAP has a unique advantage: Both solutions, SAP S/4HANA Cloud and SAP S/4HANA Cloud, private edition are based on a single foundation, using the same data, semantics, and UX. As a result, in a hybrid scenario, the integration between public cloud and private cloud/on-premise elements flows easily since all elements are basically the same solution. Predefined scenarios for central finance and central procurement are built-in to support your organization in these areas.
In addition, your users will enjoy a unique experience consistent across all solutions and might not even realize during a specific transaction whether they are using a capability in the public or private edition of SAP S/4HANA Cloud or in on-premise SAP S/4HANA.
Editor’s note: This post has been adapted from a section of the book SAP S/4HANA Cloud: An Introduction by Thomas Saueressig, Jan Gilg, Oliver Betz, and Marcus Homann.